The Federal Reserve's balance sheet

The Federal Reserve operates with a sizable balance sheet that includes a large number of distinct assets and liabilities. The Federal Reserve's balance sheet contains a great deal of information about the scale and scope of its operations. For decades, market participants have closely studied the evolution of the Federal Reserve's balance sheet to understand more clearly important details concerning the implementation of monetary policy. Over recent years, the development and implementation of a number of new lending facilities to address the financial crisis have both increased complexity of the Federal Reserve's balance sheet and has led to increased public interest in it.

Each week, the Federal Reserve publishes its balance sheet, typically on Thursday afternoon around 4:30 p.m. The balance sheet is included in the Federal Reserve's H.4.1 statistical release, "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks," available on this website. The various tables in the statistical release are described below, an explanation of the important elements in each table is given, and a link to each table in the current release is provided.

Table 1 of the release covers two pages and presents details on the factors that supply and absorb reserve balances, as well as the level of reserve balances--that is, funds that depository institutions hold on deposit at the Federal Reserve to satisfy reserve requirements and funds held in excess of requirements. Table 1 is not a balance sheet, but it is derived primarily from components of the Federal Reserve's balance sheet. In addition, certain items from the Treasury's balance sheet that affect the supply of reserve balances are included. Table 5, discussed below, contains the Federal Reserve's balance sheet.

Historically, the level of reserve balances was important to understand the effects of open market operations. In current circumstances, table 1 is of interest because it presents a detailed breakout of the assets held by the Federal Reserve. These assets include: holdings of Treasury, agency, and mortgage-backed securities; discount window lending; lending to other institutions; assets of limited liability companies (LLCs) that have been consolidated onto the Federal Reserve's balance sheet, and foreign currency holdings associated with reciprocal currency arrangements with other central banks (foreign central bank liquidity swaps).

Table 1A. Memorandum Items

Table 1A presents selected items that do not directly affect the Federal Reserve's assets and liabilities but are related to important roles that the Federal Reserve plays. The Federal Reserve Bank of New York acts as a custodian in holding securities on behalf of foreign official and international institutions. Market participants often look for trends in these data to gauge foreign demand for U.S. Treasury and agency securities. This table also presents information on the securities lent by the Federal Reserve under its securities lending programs. As noted in more detail in Open market operations, the Federal Reserve lends securities from its portfolio of Treasury securities and federal agency debt securities to foster efficient and liquid trading in the market for these securities. When securities are lent, they continue to be listed as assets of the Federal Reserve because the Federal Reserve retains ownership of the securities.

Tables 3 and 4

Tables 3 and 4 provide supplementary information related to items on the Federal Reserve's balance sheet. Table 3 provides extra information about the mortgage-backed securities purchases. Table 4 presents information on the Maiden Lane LLC, which has been consolidated onto the books of the Federal Reserve Bank of New York. Under the structure of the LLC, the Federal Reserve Bank of New York (FRBNY) was the primary beneficiary of the LLC. As a result, consistent with generally accepted accounting principles, the assets and liabilities of the LLC were consolidated with the assets and liabilities of the FRBNY, and with this consolidation, the extensions of credit from the FRBNY to the LLC were eliminated from the balance sheet.

Table 5 presents the balance sheet of the Federal Reserve System. The first page of table 5 presents the assets held by the Federal Reserve. The assets listed largely parallel the factors supplying reserve balances from table 1. The second page presents the liabilities of the Federal Reserve. Federal Reserve notes--that is, U.S. currency--is the first liability listed and has historically been the largest liability. Depository institutions maintain balances on deposit with the Federal Reserve, and these balances are reported in either term deposits held by depository institutions or other deposits held by depository institutions. A term deposit is a deposit with a specific maturity date. Balances held in term deposits are separate and distinct from balances placed in a master account; balances held in term deposits cannot be used to satisfy a reserve balance requirement or clear payments. The U.S. Treasury general account, from which the Treasury makes most of its payments, is also presented.

Also on the second page are the capital accounts of the Federal Reserve. Each member bank of the Federal Reserve is required, by law, to subscribe to shares of its local Reserve Bank in an amount equal to 6 percent of its own paid-in capital and surplus. Member banks with consolidated assets less than $10 billion receive a statutory 6 percent dividend and member banks with consolidated assets greater than $10 billion receive a dividend rate that is equal to the smaller of the 10-year Treasury note rate at the last auction prior to dividend payment and 6 percent. Of the capital requirement for member banks, half must be paid to the Federal Reserve and half remains subject to call by the Board of Governors. The Federal Reserve Act, as amended effective December 4, 2015, requires that aggregate Federal Reserve Bank surplus not exceed $10 billion. After providing for the costs of operations, payment of dividends, and the amount necessary to maintain a $10 billion surplus, any residual net earnings will be remitted to the U.S. Treasury. The Federal Reserve's Annual Report presents the cumulative payments to the Treasury as "Earnings remittances to the Treasury." Statistical table 10 in that report provides the remittances by Federal Reserve Bank, and table 11 presents historical data on the remittances.

Table 6. Statement of Condition of Each Federal Reserve Bank

Table 6 provides the same information as table 5, but incorporates data for each Federal Reserve Bank. The interdistrict settlement account reflects the netting of transactions between Reserve Banks and transactions that involve depository institution accounts held by other Reserve Banks, such as Fedwire funds, check, and ACH transactions. Of note, the assets of the consolidated LLCs mentioned above are assets solely of the Federal Reserve Bank of New York. In addition, securities held in the System Open Market Account are allocated across Reserve Banks, roughly in proportion to the capital paid in of each Reserve Bank.

Table 7 provides information on the assets that serve as collateral for Federal Reserve notes. All Federal Reserve notes in circulation--that is not in Reserve Bank vaults--must be collateralized by assets of the Federal Reserve.